There are many reasons to trade in your old mortgage for a new one by refinancing. Whether you want to free up cash for a home renovation, shorten your loan term for a potentially lower interest rate, or consolidate debts, refinancing can help you do it.

While refinancing is a useful financial tool, whether it is right for you depends on multiple factors. We’ll explore that and more here.

What Does Refinancing Mean?

Refinancing simply means replacing your current mortgage with another loan program with different terms. Once you refinance, the new loan pays off the old one, and you begin making payments on the new mortgage. People explore refinancing for a variety of reasons, including:

Lower Interest Rates

Historically, homeowners often refinanced to secure a lower rate when interest dropped below their existing one. While this was a common financial strategy in the last decade, it is less common now, given the interest rate hikes of 2022 and 2023. Yes, interest rates are falling, but whether they will drop to the historic 3% rates we saw in 2020 remains to be seen.

Access Equity

Many people use refinancing to “cash out” on a loan. That means borrowing more than you currently own on your home. For example, if you owe $200K but your home is worth $300K, you might refinance for $250K to receive $50K in cash—funds you can use to consolidate debt, finance a home improvement project, or use for another major purchase.

Change Loan Terms

If you have a 30-year mortgage but want to build equity faster while potentially securing a lower rate, you could refinance, switching to a 15-year mortgage.

Eliminate Private Mortgage Insurance (PMI)

If you put less than 20% down on your mortgage, lenders require you to carry PMI, which protects them if you default. PMI costs vary but are generally between 0.5% and 1.5% of your loan. While this cost may seem negligible, eliminating this extra cost could save you thousands of dollars over the lifespan of your loan.

If you have reached 20% equity in your home, refinancing could eliminate your PMI requirement, significantly reducing your monthly payment.

Refinancing Options

There are many refinancing options, including:

• Rate-and-term refinance: Replace your existing mortgage with a new one that has a different interest rate and terms.
• Cash-out refinance: Borrow more money than you owe to receive the difference in cash.
• Shorter-term refinance: Switch from a 30-year to a 15-year mortgage to build equity faster and often at a lower rate.
• Longer-term refinance: Extend your loan term to reduce monthly payments.
• FHA streamline refinancing: A simplified process for existing FHA borrowers with less paperwork and often no appraisal required.

What are the Costs of Refinancing a Mortgage?

In general, refinancing costs between 2-6% of the total loan amount. However, the cost can vary widely depending on:

• How much you borrow: Larger loans typically have higher total costs.
• The type of loan you have: Converting from one loan to another generally includes additional fees and documentation.
• The type of loan you switch to: While cash-out loans often cost more than traditional refinancing, government-backed FHA and VA loans typically have lower out-of-pocket costs.
• Credit score: The higher your credit score, the lower your interest rate will likely be.

Requirements for Refinancing a Mortgage

Do you have a credit score of at least 620, a downpayment of at least 3.5%, a low debt-to-income ratio, and a consistent and documented income record? Then you may qualify to refinance with JustChoice Lending.

Additional factors to consider may include:

• How much equity you have (preferably 20%)
• Whether your home meets the minimum appraisal requirements
• A history of timely payments

It’s also worth mentioning that JustChoice Lending offers specialty programs for those who may not qualify for a traditional loan. If you do not meet these minimum requirements, we encourage you to discuss these programs with our team.

Ready to Refinance? We Make It Simple

Whether you’re considering refinancing or have questions about our competitive mortgage programs, we’re here to help. From finding the right loan to closing the deal, our team provides the expertise you need and the personal attention you deserve. Contact us today!